The Senate Finance Committee held a cordial confirmation hearing this morning for Jacob Lew, President Barack Obama’s nominee to be Treasury secretary. Mr. Lew, who has been the White House chief of staff since last year and previously had been director of the Office of Management and Budget, faced questions on a range of topics from budget cuts, tax overhaul, and China’s currency to his time at Citigroup Inc.

In his prepared testimony, Jacob Lew waded directly into a fiscal policy fight, urging senators to avoid $85 billion in automatic spending cuts set for March 1.

“We cannot allow the series of harmful automatic spending cuts known as the sequester to go into effect on March 1. These cuts would impose self-inflicted wounds to the recovery and put far too many jobs and businesses at risk,” Mr. Lew said in the testimony prepared for the Senate Finance Committee confirmation hearing.

Democrats want a quick confirmation, and Republicans have raised a series of questions about Lew’s work at Citi and his personal investments. Utah Sen. Orrin Hatch, the committee’s top Republican, said before the hearing that he would dig into Lew’s time at Citigroup, where the nominee worked from 2006 until early 2009. The bank nearly became the largest casualty of the financial crisis, requiring multiple government bailouts to remain solvent. It has since paid back all government funds.

Baucus kicks off what could be a politics-packed hearing by paying homage to Albert Gallatin, the longest-serving U.S. Treasury secretary (almost 13 years in the job) whose 12-foot bronze statue stands in front of the Treasury Department. Baucus quotes Gallatin as saying that the job of Treasury secretary “is more laborious and responsible than any other.” (Indeed, the first U.S. Congress considered the Treasury Department to be the most important of the first departments.

Big shoes to fill. “Mr. Lew will have his work cut out for him,” Baucus says.

Lew has been confirmed by the Senate three times before, but never before the Senate Finance Committee. So far, 8 of the panel’s Democrats have said they’ll support Mr. Lew. All of the Republicans on the panel have said they are reserving judgment.

Baucus says the new Treasury secretary should have three priorities: 1) job creation “Do not get distracted.” 2) “help return predictability and stability to our nation’s capital.” (translation: no more manufactured crises) 3) Simplify the tax code for individuals and businesses.

Sen. Orrin Hatch (R., Utah) goes next. He is hitting the concerns of many GOP senators.

He says Lew is “well-versed in budget matters” but that those aren’t the Treasury secretary’s main responsibilities. Hatch also suggests Lew shares the administration’s “reluctance” to overhaul entitlement programs that are driving the deficit. We’ll surely hear more about this soon.

Hatch shares his concerns about the Dodd-Frank financial regulation rules.And he warns about “the risk of international currency wars is rising, which could push the U.S. back into recession, or worse.”

Hatch also raises concerns about Lew’s work at Citi, where he was a senior executive as chief operating officer during its bailout. “If you are confirmed as Treasury secretary, you will be responsible for overseeing the implementation of regulations directed at some of the very practices undertaken by the Citi units that you once operated,” he says.

Lew introduces his wife, Ruth, and his daughter. The family introductions are one of the best parts of confirmation hearings. The nominee’s family gets to sit there at what looks like a pleasant hearing, but by the end they’ve heard why the lawmakers from another party don’t care one bit for your loved one.

Sen. Charles Schumer (D., N.Y.), Lew’s longtime friend, introduces him at the hearing and tries to address one of the main GOP criticisms of Lew. Some Republicans have raised concerns that Lew has considerable budget expertise, but much less expertise in financial markets. “Not any Treasury secretary can have expertise immediately in all” issues, Schumer said. But he said Lew is a quick learner and can get up to speed quickly. Schumer also says Lew will follow in the tradition of Gallatin and Alexander Hamilton. He notes that Hamilton was also a New Yorker — and quips that he didn’t know him.

Lew takes the opportunity to talk about working across the aisle. Working toward bipartisan consensus, he says, is important, citing his work with former House Speaker Tip O’Neill. He also uses the moment to discuss overseeing “three budget surpluses in a row” when he was budget director in the Clinton administration. “The things that divide Washington right now are not as insurmountable as they look,” he says.

Baucus kicks off the questioning, saying that the Finance Committee will embark on “substantive” tax overhaul, and asking Lew for his views. Lew replies that it’s “important that we do this,” and that there’s a bipartisan desire to overhaul taxes.

Sen. Baucus opens his questioning with a focus on tax overhaul, seeking Lew’s vision for revamping the tax code. Lew calls it an “extremely important priority,” and says it can be done on a bipartisan basis. “I was involved in 1986 tax reform. I know how hard it is,” he says. He hits the usual line about tax reform and the need to “broaden the base and lower the rates.” But he notes that it will require taking on “entrenched interests” to take actions that would support U.S. competitiveness and job creation.

Baucus accomplished his mission by making the first discussion at this hearing the tax code. Lew isn’t breaking new ground, but he expresses his interest in an overhaul.

Baucus dives right into a potential controversy over Lew’s investment in the Cayman Islands, asking what Lew did and why he did it.

Lew explains that he had the opportunity, as a Citi employee, to invest in a venture capital fund to invest in emerging economies around the world. It was a “riskier” investment compared to his usual conservative investment philosophy, he says.

Lew says he didn’t know at the time the address of the partnership in the Caymans. And get this: he took a loss on the investment, which he divested in 2010. Lew says he did report all income related to the investment, but “I didn’t have a great deal of income” because he lost money.

Hatch jumps right into the Citi issues with a long list of questions about what he considers risky investment decisions by Citi. Lew gets around all of this by explaining his operational role at Citi, and says his work didn’t involve the riskier funds. “I wasn’t designing them and I wasn’t opining on them.” But Lew says his role at Citi gave him a deep understanding about “risks we should guard against.”

Lew took a couple tough questions from Hatch and Iowa Republican Sen. Chuck Grassley on his time at Citi and a $56,000 investment he had in a Citi unit housed in the Cayman Islands. He said he didn’t gain any tax benefit from the fund being housed in Citi and actually sold the investment at t a loss (he would sell it for less than $55,000). But it’s unclear – and he didn’t note – how much income he might have gained from dividends during the three years he was invested. That still hasn’t been addressed or clarified. In other words, it might have been a profitable investment, if you count the dividends he earned before divesting.

Grassley seems surprised he’d get the opportunity to go next in the first-come, first-questioner rule of this committee.

Grassley goes right into the Citi issues, trying to take on Lew for getting a bonus from a bank that got a federal bailout. Lew is unfazed by all of this and says the money was from his work in the private sector for years. “I was compensated for my work.”

Grassley moves on, getting into tax-shelter questions as well, but he’s not getting much out of Lew. “I reported all income,” Lew says. He adds his strong belief that it should be “difficult if not impossible to shelter income from taxation.”

“I believe very strongly that people should pay taxes on their income,” he says, and he invites policy questions about how the tax code should be structured.

You might remember a contentious hearing four years ago for a Treasury secretary nominee who had failed to pay the taxes he owed. This hearing is not going in that direction.

So far, Democrats are getting Lew to talk about all the wonderful benefits of overhauling the tax code. Republicans started by questioning Lew about his work at Citi, his investments and his taxes, and now they’re getting into tax overhaul as well. So the Senate Finance Committee wants tax reform.

Sen. Mike Crapo (R., Idaho) says we need to overhaul the tax system not to generate revenue but to generate growth. You can’t argue with growth.

How low can corporate tax rates go? Lew expresses skepticism about getting down to 25%, as Crapo wants, but there’s no real friction on this point. Lew maintains that the U.S. should do individual and corporate tax reform at the same time. He also says “there’s room to work together” on dealing with territorial tax issues and setting minimum tax rates.

Sen. Maria Cantwell (D., Wash.) is getting into some of her favorite issues here. She asks Lew: Do you believe in the reimplementation of Glass-Steagall? (That’s the 1933 law setting up walls between commercial banking and investment banking. It was pulled apart in the late 1990s.)

Lew says Glass-Steagall “over the years had become something of an anachronism” as activity in the financial world outpaced it. He also says Dodd-Frank was critical to “reasserting” oversight of the financial system and that “we have to ask questions” about whether more actions are needed.

Cantwell was looking for something else. “I’ll take that as a no,” she says.

Lew tells Sen. Cantwell he didn’t mean to be answering it yes or no (and right, he didn’t), but says he comes to the issue “open minded” about preventing 2008-style conditions in which the financial system outpaces the regulatory system.

Cantwell wins the prize so far in this hearing for touching on the most issues. She gets into taxing municipal bonds, dealing with swaps and futures and more. The rare lawmaker who understands swaps and futures earns a gold star from us, whatever your views on the policy substance. But even so, Cantwell didn’t get much out of this exchange.

One of the reasons Lew’s colleagues believe he was chosen by Obama to be the next Treasury secretary is because of his loyalty to the White House. This hearing is a good example of that. On virtually every question, he fully endorses either White House proposals or White House policies, ranging from Dodd-Frank to tax policy.

Lew is really disposing of these questions effortlessly. Hearings with the last Treasury secretary, Timothy Geithner, were rhetorical slugfests. Get your popcorn, plop down on the couch in front of C-Span and watch the political sparring.

This hearing sounds so polite and calm you might wonder whether Lew is getting confirmed for an assistant secretary job, not the senior role on the administration’s economic team right in the middle of a giant budget brawl.

Lew tells Sen. John Thune (R., S.D.) that “we have a deficit problem” and we need to have a discussion and “figure out the right balance.”

He tells a Democratic senator he supports Dodd-Frank and sanctions against Iran. And he says his role should be to always ask “what can we be doing to get the economy moving” and create jobs. So there.

Asked about the sanctions against Iran, Lew says he believes they are accomplishing their goal:The sanctions, he says, are “crushing” the Iranian economy, lowering the value of its currency and reducing its economic output. He also said that the sanctions provide hope that the standoff with Iran can be resolved peacefully.

We knew we could count on Sen. John Cornyn (R., Texas) to take this up a notch, but only slightly. He dives into Medicare funding, energy tax provisions and overall spending.

Cornyn tries to press Lew on whether oil and gas companies would face higher taxes (as an administration proposal would). Lew replies: “It would take away a special provision that now encourages activity in that area” versus other areas. Some provisions would need to be eliminated for everyone to get a lower rate, he says.

On spending, Lew says what’s driving spending is the 30 million baby boomers who will be retiring and taking Social Security and Medicare benefits. But federal discretionary spending is now at a historically low level as a share of GDP, down to levels of the Eisenhower administration. (You’ll be hearing that line a lot in the coming weeks.)

Sen. Sherrod Brown (D., Ohio) is the most liberal member of the Senate Finance Committee, frequently voicing concerns of unions and factory workers. He picks a big one, asking Lew whether China’s currency manipulation amounts to an “export subsidy.” What might sound like a simple question is really designed to draw out an answer that could lead the U.S. to fight China harder in international bodies.

But Lew knows where this is going and doesn’t take the bait. He says the administration has been pressing China on its “undervalued” currency and unfair trading practices. The yuan has appreciated 15% due to those efforts, he says. “It’s still undervalued and more progress needs to be made.”

Sen. Pat Toomey (R., Pa.) suggests the Federal Reserve is devaluing its currency, as other nations are, and asks whether Lew would seek to protect the dollar. This is where a Treasury secretary would recite that a strong dollar is in the U.S. interest, or risk sending markets into incredible turmoil.

So what does Lew say?

You guessed it. Treasury has had a “longstanding position” through Democratic and Republican administrations, Lew says, that “a strong dollar is in the best interests of promoting U.S. growth” and competitiveness.

And there’s more on global currency policy, which we assume will be an issue for the next Treasury secretary nominee’s hearing as well. “We have to vigorously insist that the laws and international agreements be honored,” Lew says, or lead to consequences if they’re not honored. He says the U.S. works through international bodies such as the G-7 and G-20. He says he’d work with senators to assure manufacturers the U.S. will be an attractive place.

Between questions, we learn that Jack Lew’s wife had to leave early so she could return to New York to teach a class.

We are also reminded by Sen. Richard Burr (R., N.C.) that he’s a distant relative of former U.S. vice president Aaron Burr who killed Alexander Hamilton in a duel in 1804. Sen. Burr: “I want you to know that my family’s differences with Alexander Hamilton” do not extend to other secretaries. (Good one, senator!)

Pinned down on who came up with sequestration and why, Lew keeps reminding the senator that the U.S. was facing the risk of default back in the summer of 2011 when sequestration came up as the solution. It was designed to be objectionable and lead to a fix. “Sequestration is so objectionable that we should just do our work and solve the problem,” Lew says.

Sen. Ron Wyden (D., Ore.) tells us that since 2001, Congress has passed 137 laws changing the tax code, leading to a more “dysfunctional” and “byzantine” tax system. Should we put a hold on the piecemeal approaches to the tax code to force a larger overhaul?

That would be an interesting step that we hadn’t heard before. Lew says he hadn’t thought about it that way, either, but says his predisposition is to “get the big job done.”

Baucus, in the second round of questions, asks Lew several times how Congress can be sure Lew has the “courage” to do the Treasury job. The question might seem random, after three hours of discussion about the tax code, but there’s a history behind it. Baucus and former Treasury Secretary Geithner were quite close and got to know each other very well. Baucus is probably trying to get Lew to open up a bit about himself.

Lew’s response: “It’s about building trust. It’s about having credibility. It’s about speaking clearly and saying what you think.”

Almost three hours into this hearing, Lew gets a question about Europe. Imagine that happening in 2011 or 2012 when the euro-zone crisis raged. Lew says “the international financial situation is one we do have to watch very closely” and the U.S. can’t separate itself from the world. Europe is the largest U.S. export partner and we’d be hit if Europe has a financial crisis.

Lew says he had been “deeply involved” in addressing European issues as White House chief of staff. “We’ve been worrying about the exposure to the U.S. economy due to risks overseas,” including financial interconnection with risks tied to sovereign nations.

He does offer a positive note for the euro zone: “Europe has shown resolve to deal with its problems, both as a union and individually within countries,” demonstrating willingness among the broader European community for addressing tough problems, Lew says.

Sen. Hatch, getting another chance, hits at Lew for his compensation at Citi before the 2008-09 bailout. Hatch quotes Obama bashing bankers’ bonuses and calling them irresponsible.

Lew brushes this off, again, pointing to his role running “the business of the business” at Citi. He worked to shed real estate and parts of the operation that were not necessary. Lew also says his private-sector experience enhances his ability to perform the job at Treasury, having practiced law, worked at a university and at a financial institution. On the financial matters, Lew says his compensation was for work in 2008. Lew’s bonus came on top of a base salary, which he says was $350,000 that year.

That’s a wrap after more than three hours. This was as civil a hearing as you could hope for as a nominee for a top cabinet position. Some Republicans may oppose him, but if they do, it probably won’t be due to this hearing. And it’s hard to imagine Lew would face meaningful opposition in the rest of the Senate, either.

Comments (5 of 5)

yes, it was the democrat liberaltards that created the sequestration! of course the MSM lamestream hollywood elite media is trying to brain wash people into thinking that it was a bipartisan compromise. stupid brainwashed liberaltards

2:24 pm February 13, 2013

Anonymous wrote:

July 26, 2011 -- At 2:30 p.m., [White House Budget director Jack] Lew and [White House legislative affairs director Rob] Nabors went to the Senate to meet with [Senator Majority Leader Harry] Reid and his chief of staff, David Krone.

“We have an idea for a trigger,” Lew said.

“What’s the idea,,” Reid asked skeptically.

“Sequestration*.”

Yet, what does Lew testify in front of Congress today: "We cannot allow the series of harmful automatic spending cuts known as the sequester to go into effect on March 1. These cuts would impose self-inflicted wounds to the recovery and put far too many jobs and businesses at risk, " Mr. Lew said.

Frankly, the first job at risk should be the one Lew seeks now as he, like Obama, was a creator of an act that they now say is dangerous. One more reason why Lew is unfit to serve.

*Washington Post -- tinyurl.com/95t3qsh

11:52 am February 13, 2013

Thoughtful reader wrote:

People in his community often talk about "off the books" work - - the orthodox Jewish community - how can someone from that world become head of the Treasury? What a joke

11:46 am February 13, 2013

Highgamma wrote:

In my last comment, I meant to say "wasn't" instead of "was" in the second sentence.

11:22 am February 13, 2013

Highgamma wrote:

It's almost certain that Lew benefited from tax deferral benefits that would not have existed if his fund were based in the US (except for carried interest). Just because he had a loss doesn't mean that he was set up to dodge the tax code. He was set up to defer taxes on gains but write losses off for a tax benefit.

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